India’s direct tax regime and its approach to cross-border disputes are notoriously adversarial, resulting in a staggering backlog of cases before appellate tribunals and stalled Mutual Agreement Procedure (MAP) negotiations. While ad-hoc domestic amnesty schemes, such as the recent Direct Tax Vivad Se Vishwas Scheme, 2024, temporarily alleviate docket congestion, they fail to address the systemic procedural inefficiencies inherent in tax assessments. This article advocates for a paradigm shift from traditional zero-sum litigation to a formalized, mandatory mediation framework. By analyzing the structural limitations of the current appellate hierarchy and the psychological barriers specifically the fear of vigilance inquiries among revenue officers, this paper argues that evaluative mediation can effectively bridge the trust deficit between taxpayers and the state. Drawing upon comparative successes in the United Kingdom and Australia, the article proposes a comprehensive, two-pronged structural model. Domestically, it recommends integrating a pre-assessment Independent Tax Evaluator (ITE) mechanism into the Income Tax Act 2025, safeguarded by a Supervisory Collegium to shield assessing officers. Internationally, the framework tackles the escalating complexities of treaty-based disputes by proposing the integration of mandatory ‘Last Best Offer’ (baseball) mediation into Double Taxation Avoidance Agreements (DTAAs) to resolve MAP deadlocks without diluting sovereign authority. Ultimately, institutionalizing Alternative Dispute Resolution (ADR) will not only recover locked revenue expeditiously but also foster a collaborative, robust, and economically progressive tax compliance culture.

 

Keywords: Alternative Dispute Resolution (ADR), Direct Tax Litigation, Mandatory Evaluative Mediation, Tax Dispute Settlement, Income Tax Act 2025